Debt to Income Ratio
The debt to income ratio is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after all your other recurring debt obligations are fulfilled.
Understanding the qualifying ratio
For the most part, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything that constitutes the full payment.
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes things like vehicle loans, child support and credit card payments.
Examples:
With a 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualifying Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
At Americn Hero Mortgage, we answer questions about qualifying all the time. Give us a call: 754-202-4376.